APIS enable banks to build a digital investment offer like a Lego. So what?
I founded a fintech company with a finance, rather than a technology background. Notwithstanding my blonde hair, over the last 5 years I managed to gain a superficial understanding of the key technology topics needed in order to conduct my business. One concept that I managed to understand reasonably well is the one of APIs. The APIs technology really struck me because of its potential to make the fintech revolution really happen.
APIs in my mind looks like the true atoms of digital innovation. Blockchain is possibly the future of banking technological innovation, APIs are the present.
APIs literally stands for “Application Program Interface”. In a nutshell they represent sets of requirements that govern how one application can talk to another. APIs expose some of a program’s internal functions to the outside world in a limited way. That makes it possible for applications to share data and take actions on one another’s behalf without requiring developers to share entirely their software’s code.
You can think of APIs as doors or levers rather than Lego bricks to connect different applications and build more.
From mobile banking apps to smartwatches, banking and insurance customers now expect services to be available 24/7 from any place, and on any device.
The usual starting point on the the journey to digital enablement in financial services is omni-channel interactivity. The following step is to provide innovative services through these new omni-channel capabilities.
This means building, bundling, securing and monetizing a sound mix of internal and external services that enable more data to flow through more systems, be accessed and used by more people, and arrive on time, intact and error-free at more endpoints beyond the safety of firewalls.
The power of the APIs concept as an engine of innovation is clear: applications that in the past needed a long time (even years) to build, with APIs can be built in just a few days .
The pace of innovation for companies which have been using APIs for a long time are such as Google or Saleforce is impressive.
The kind of fascination that the financial industry should prove for this technology is self-evident, with the flexibility offered by APIs, fast innovation, savings and operational efficiency, become really at hand for banks.
The transition to APIs is no picnic for banks, since it requires an investment that is not only economical but implies a shift in culture in the first place. The good news is that APIs technology is there already, widely used and pretty standardized, and more importantly able to preserve the degree of security and data ownership that banks are obsessed with.
That’s why about 3 years ago shortly after shifting the business model of AdviseOnly to B2B, , we decided to invest in creating our own APIs. The decision came after number of exhausting conversation with banks interested in our financial technology which ended up in smoke, because of the banks’ constrainsts in terms of cost, time to market, security issues and IT effort needed.
We spent about one year to complete the entire process, but today we can provide through APIs any part of our service, risk management, portfolio construction, Mifid profiling, reporting…
That proved to be smartest investment we have taken so far as digital investment experts to build our business as B2B.
The AdviseOnly team has spent several years and a few millions euro in developing a digital investment platform based upon a state-of-the art risk engine which is optimized with tools and features developed on the basis of real interaction with over 25,000 users. We are handling over than 14,000 customer portfolios and several thousands of different financial instruments. Even more importantly our investment system has lived a number of real market crisis, and it has been performing well.
Thanks to our own investment in an APIs layer, any bank can get a digital investment solution that is modern and highly customizable and require no data sharing (thanks to RESTful stateless APIs) for a small fraction of the cost we have born. The go-to-market is a matter of a few months and the impact on the customer IT department is minimal.
Why on earth, a generalist bank should develop its own robo-advisory from scratch for a huge cost, running into several technological constraints and going to market when the original project risks to be out of date? That’s applicable not only to digital investment or advisory but to any other specialist service in finance.
From a general (and less commercial) standpoint, the transition to the APIs world is clearly not a picnic for banks, as it requires an investment that is not only economic but implies a shift in culture.
The problem with embracing the APIs logic and the wide potential for innovation it unveils, is primarily a cultural one. Banks are paranoid about security, data and customers ownership.
On the other side APIs can offer a high level of security and strong data protection features, while enabling banks to really focus on customers and deliver the modernization and transformation customers expect.
A different mindset and some technical understanding are needed as natural attributes of banks’ top management. If APIs implementation will be limited to something “forced” by PSD2 and perceived as another regulatory request, far from the core banking business, a big opportunity will be lost by banks and seized by someone else.
Early movers would have a competitive advance. The other are at risk of lagging behind and being disrupted
In the meantime, the acquisition of Fidor bank by BPCE, news that got surprisingly short shrift from the media, looks to me as a cornerstone towards the new world of APIs banking.
Banks have customers and trust, fintechs have the technology, APIs are the link between the two to lead financial customers in a new era.